Sundial Growers (NASDAQ:SNDL) stock has had an incredibly volatile year. It attracted the r/WallStreetBets crowd and, at one point, was up more than 400% this year.
However, the Canadian cannabis producer has cooled off considerably in the past three months as SNDL stock is down more than 32%. This diverts attention from the company’s real problem, though: its inability to grow its revenues in a booming market.
It’s tough to forecast what a stock like SNDL will be worth considering the capriciousness of the investment. Based on major price metrics, though, the stock is highly overbought at this point.
For instance, the forward enterprise value to sales multiple is over 22 times, 600% higher than the sector median.
As a result, consensus estimates suggest that the stock price is trading at an 18% discount. However, there is a massive dispersal between the high and low estimates. Hence, SNDL stock remains highly risky, which can easily be avoided considering the alternatives in today’s booming cannabis market.
Though SNDL stock has pulled back considerably in the past few months, it doesn’t mean investors can ignore its risks.
It’s a company in the midst of a transition from wholesale to branded retail. In doing so, it is moving incredibly fast in launching new brands and acquiring other companies to cover all market segments as quickly as possible. However, if its strategy doesn’t pay off, the stock could nose-dive even further, and this time to the point of no return.
It has had several capital raises this year, which has taken its cash balance over $700 million. So naturally, its investors expect the company to make productive use of the new funding.
In addition, earlier this month, the company announced it was acquiring Inner Spirit Holdings for $131 million. Inner Spirit has one of the largest retail networks in Canada and promises to offer significant synergies to the Sundials business.
Moreover, Sundial has also boosted its commitment to cannabis venture Sunstream Bankcorp by an additional $64.2 million. The goal is to seek more lucrative investment opportunities in the Canadian and International markets. On top of that, sundial has also boosted its stake in cannabinoid-based-products developer, The Valens Company.
Poor First Quarter Results
Sundial reported its lackluster first-quarter results this week, where its net loss widened to 254% to about $111 million. Moreover, revenues dropped 29% on a year-over-year basis to nearly $8.2 million and sold 3,989 kilograms of cannabis.
This represents a 45% decrease from the first quarter in 2020. Additionally, the drop in cannabis flower pricing in Canada led to the company liquidating some products during the quarter.
Sundial’s earnings results were even more disappointing on a sequential basis, suggesting that the pandemic is continuing to weigh in on the company’s results. Going forward, the company will look to limit discounts and focus on more profitable, high-margin products.
Sundial’s performance is extremely worrying, especially with regards to the performance of its peers. For example, its year-over-year revenue growth is negative 4.20%, while the sector median is at 5.60%. Moreover, it also trails the sector in terms of forward revenue estimates.
Bottom Line on SNDL Stock
It’s been a busy year so far for Sundial as it hopes to turn things around with its business. The company has failed to expand its revenue base in recent years, and its strategic shift offers a glimmer of hope.
However, it remains to be seen how its recent acquisitions impact its top line in the coming months. At this point, though, it’s tough to get excited about the stock based on its recent performance.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.